Wednesday, September 21, 2011
The first step to a debt free lifestyle, according to people who are living the life, is an emergency fund. Dave Ramsey recommends an initial "baby emergency fund" of $1000 (which should pay for most common emergencies). After paying off debts, a six month emergency fund is recommended (6 months of essentials- not luxuries).
Suze Orman has been recommending eight months of living expenses as an emergency fund before paying off credit cards or becoming debt free.
Honestly, I'm torn between the two options. Because all personal finance is personal I guess I have to find what works best for me. As a single guy, I doubt that 8 months of living expenses should be a primary goal. A family man may see this as a necessity.
I am glad that as of Oct 7, I will have an initial emergency fund of $1000 stashed away in an ING account. Then, at least for the next 12 months, I plan on following Ramsey's advice and eliminating all credit card debt from smallest to largest. The only other debt I have is a student loan.
After paying off the credit cards, I am going to stop and see where I'm at- where the economy's at- and determine whether to plow ahead or stash a 6 or 8 month long term emergency fund aside before tackling the student loan.
If possible I would like to take a trip to Albania (as cheaply as possible) as a "reward" once my credit cards are paid in full. Hopefully this will be in 2013!